Government response

The Committee recommends the following as necessary components
of the 'public interest' process:

1(a) Responsibility for commissioning reviews (ie terms of reference,
nature of the review and reviewers) should be taken at Ministerial level;

Response

Agreed.

At the Commonwealth level, Ministers have the responsibility for commissioning
reviews and determining matters such as the terms of reference, type of
review body chosen, membership of review bodies and reporting requirements.

For reviews that are listed on the Commonwealth's Legislation Review
Schedule, the Treasurer is advised by the Office of Regulation Review
(ORR) on the adequacy or otherwise of reviews' terms of reference. To
assist in the conduct of legislative reviews, the ORR has prepared a template
terms of reference (see the response to 1 (c) for more details). Any amendments
to the Legislation Review Schedule require the agreement of the Prime
Minister, the Treasurer and the Minister responsible for the relevant
legislation.

1(b) The nature of the review should be determined taking into account
the significance, importance, diversity and sensitivity of the issue to
be considered;

Response

Agreed.

The Government has decided that in order to prevent unnecessary expenditure
in performing reviews, the intensity of reviews and the composition of
review bodies will be tailored to the nature of issues being reviewed.

Eight review modalities have been identified for performing legislation
reviews, with the type of modality chosen depending on the significance,
importance, diversity and sensitivity of the issue. The review modalities
are:

* A review by an independent committee of a group of experts appointed
by the Government would be appropriate for high profile reviews of major
and/or sensitive issues.

* An inter-departmental committee which would be appropriate for minor
reviews of a non-contentious nature.

Competition policy reviews can be performed jointly with other reviews
of associated matters. For example, the 1997-98 scheduled review of Part
6 of the National Health Act 1953 and Part 3 of the Health Insurance Act
1973 was performed as part of the Industry Commission's review into private
health insurance. When competition policy reviews are subsumed by such
overarching reviews the competition policy aspects are still given due
consideration. This requirement should be reflected in both the terms
of reference and the expertise of the review body.

A discussion of national reviews is included in the response to Recommendation
1(f).

1(c) Clear terms of reference should be developed for the review including
identification of the factors, whether in the list of factors set out in
subclause 1(3) or otherwise, that the decision maker believes is relevant.
Terms of reference should be agreed by the relevant Minister;

Response

Agreed.

The ORR has prepared a template terms of reference to provide guidance
for performing legislation reviews. This template sets out the broad parameters
for legislation reviews incorporated in the Competition Principles Agreement
(CPA) and lists a range of factors that the review bodies are to have
regard to when performing reviews. For example, a review should, among
other things: clarify the objectives of the legislation; identify alternative
approaches to the legislation; and analyse the costs and overall effects
of all proposals. This list is not exhaustive and when developing terms
of reference, decision makers are free to include any matters believed
to be relevant. Legislation reviews that have been performed to date have
exercised this freedom to tailor reviews to the nature of the issues being
considered.

As already mentioned, reviews terms of reference are approved by the
relevant Minister.

1(d) The process and its timing should be as transparent as possible;

Response

Agreed.

Transparency is an important element of any review process. Public awareness
of and participation in a review is crucial to the success and ultimate
acceptance of a review's findings.

Accordingly, the ORR's template terms of reference specify that the
terms of reference should be made publicly available including a requirement
to advertise the review in national newspapers, to consult with key interest
groups and affected parties, to specify a reporting date (depending on
the complexity of issues to be considered), and to publish the findings
of the review. The Commonwealth will publish an annual report on progress
and outcomes of the legislation review program.

1(e) A plan of the review should be developed including details of
the nature of the review to be used, resources and funding, and specify
key dates (start, end, advertisement, call for submissions, closing date
for submissions, reporting);

Response

Agreed.

As noted above the ORR's template terms of reference specify a consultation
process, the modality of review, the membership of the review body, the
support services supplied to the review body, and the funding arrangements.
Beyond this, the review body should develop a clear plan to facilitate
the overall design of the review, including the technicalities of performing
the review, the timetable for the review etc.

1(f) Consideration should be given to variations of the process for
example joint review, national review, etc;

Response

Agreed.

In many instances, competition policy reforms cut across multiple jurisdictions.
In such cases there are clear synergies in joint action.

In recognition of the benefits of performing national/joint reviews
in the field of legislation review, the Council of Australian Governments
(COAG) Committee on Regulatory Reform (CRR) is coordinating development
of possible national reviews. The CRR comprises Commonwealth, State and
Territory representatives and reports to Senior Officials who in turn
report to COAG. An Interstate Legislation review Working Group of officials
operated prior to the more formal CRR process.

The CRR's role is to facilitate the coordination of joint or national
reviews of legislation in instances where there is common legislation
or where legislation has effects across jurisdictions. For example, the
CRR is currently overseeing a joint review of Australia's food regulation
(which comprises Commonwealth, State and Territory regulation) and the
regulation of agricultural and veterinary chemicals. These reviews were
announced in the Prime Minister's Statement More Time for Business. The
CRR is giving consideration to establishing joint reviews in a number
of other fields.

The Competition Principles Agreement allows Parties to request assistance
from the National Competition Council (NCC) in examining issues associated
with prices oversight, competitive neutrality, structural reform of public
monopolies, and legislation reviews. This assistance is most appropriate
in circumstances where there is a national dimension or effect on competition.
For example, the review of the legislation governing Australia Post has
recently been referred to the NCC.

1(g) Methodology used for weighing up the benefits and costs should
take account of both quantitative and qualitative data;

Response

Agreed.

A review of legislation that may affect businesses or restrict competition
should follow the methodology used for the Regulatory Impact Statement
(RIS) process. A RIS aims to ensure that new or amended regulatory proposals
are subject to proper analysis and scrutiny as to their necessity, design,
and net impact on business and community welfare. The process emphasises
the importance of identifying the effects on groups who will be affected
by changes in the regulatory environment, and consideration of alternatives
to the proposed regulation.

RISs take account of both qualitative and quantitative data. Indeed,
RISs should not be limited to tangible items; intangibles such as environmental
amenity should be examined where appropriate.

Two recent Commonwealth reviews which incorporated both qualitative
and quantitative information are the Industry Commission's Private Health
Insurance Report No 57, and the Review of the Nuclear Safeguards (Producers
of Uranium Ore Concentrates) Charge Act 1993.

1(h) The review should consider the overall, wider consequences and
impacts of the decision;

Response

Agreed.

The ORR's template terms of reference emphasises the importance of taking
a broad view of the benefits and costs to the community as a whole, including
the public interest.

Where a review examines possible amendment or introduction of regulation
that may affect businesses or restrict competition a Regulatory Impact
Statement (RIS) is required. In determining the net impact of a proposal
a RIS takes an economy wide perspective. Not only business implications
are considered, but also any effects extended to the wider community,
in order to determine the overall impact of a given proposal.

1(i) Level of consultation may vary with the significance, diversity
and sensitivity of the review. Consultation should involve key stakeholder
groups;

Response

Agreed.

Just as the type of review modality will vary according to the nature
of the issues being considered, so too will the level of consultation.
For example, extensive external consultation for minor reviews of essentially
in-house matters would be unnecessary.

Nonetheless, in the majority of instances considerable consultation
will be warranted. In such instances, affected parties will be given the
opportunity to express their views to the review body.

1(j) Where possible reviewers should be independent of the existing
arrangements with more significant, more major and more sensitive reviews
demanding greater independence;

Response

Agreed.

In part, the variety of review modalities available reflects the level
of independence required for different types of reviews. For example,
minor reviews on very technical matters may be best performed by an intra-departmental
committee, perhaps comprising of individuals involved in administering
the matter under review. In comparison, a committee of independent members
appointed by the Government would be more appropriate for high profile
reviews of major and/or sensitive issues.

The more significant and sensitive the matter under review the greater
the need for independence. However, in all instances there needs to be
a judgement made on the necessity for independence versus the necessity
for specialist expertise. It is crucial, particularly for reviews of sensitive
matters, that while members of the review body not be directly involved
in government decision making, they have a suitable understanding of the
existing arrangements. In deciding on the appropriate balance between
independence and technical expertise, resource implications will also
be taken into account.

In order to ensure that appropriate technical expertise is involved,
it may be appropriate that any independent review body is supported by
a secretariat supplied by the relevant Government Department or Agency.

1(k) Where reviews are undertaken by persons closely involved in the
activity in question, there should be provision for a review or reconsideration
of the initial conclusion by some person or body independent of the relevant
activity;

Response

Agreed in principle.

Review findings do not constitute Government policy. Rather, review
findings will be taken into account by the Government when deciding on
what action, if any, to take. Government is always ultimately responsible
for making policy decisions.

While the Government retains the discretion to commission a further
review of a particular matter, it is not envisaged that there will always
be a multi-stage review process. A follow up review would most likely
occur in instances where public reaction to an initial review's findings
indicated ongoing concern with various issues.

The Government agrees that if further reconsideration is warranted,
then this should be done by persons independent of both the initial review
and the administration of the matters under review.

In the case of implementing competitive neutrality, an independent Commonwealth
Competitive Neutrality Complaints Office (CCNCO) has been established
within the Productivity Commission. The CCNCO will receive complaints,
undertake compliant investigations and provide advice to the Treasurer
on the application of competitive neutrality to Commonwealth business
activities.

1(l) Results of reviews and relevant key stages in the review process
shall be publicly available;

Response

Agreed.

As discussed earlier, transparency is an important element of any review
process. Affected parties will be consulted in performing a review (as
discussed in 1(i)) and the review will be open to public scrutiny at key
stages in the process. For example, review reports are to be published.

However, the scope of a review and the review body's mandate, will not
be limited by transparency considerations.

The Competition Principles Agreement requires jurisdictions to publish
annual reports on their progress in implementing competitive neutrality
and the legislation review principles. Jurisdictions are currently preparing
these reports which will be publicly available. They will provide information
on the implementation of competition policy, including the results of
competition policy initiated reviews.

In addition, the NCC will assess jurisdictions' implementation of competition
policy before the payment of each of the three tranches of competition
payments, as satisfactory progress towards implementation is a precondition
for receipt of competition payments. The NCC has published its first assessment
in June 1997 and further assessments will be made in 1999 and 2001.

1(m) Where a matter is reconsidered at a later date, similar processes
to those that applied to the initial consideration should be followed; and

Response

Agreed in principle.

There should be consistency in review processes. However, it may not
always be necessary to redo a full review. It may be the case that successive
reviews would be best limited to considering particular issues that have
become apparent since the initial review. This will be decided on a case
by case basis.

1(n) The Parties should coordinate their efforts to achieve a common
set of basic principles to apply the 'public interest test' as outline in
(a) to (m) above.

Response

Agreed in principle.

Under national competition policy all jurisdictions retain sovereignty
over how to apply competition policy. This discretion is central to implementing
competition policy. However, the Commonwealth, States and Territories
have maintained ongoing dialogue on competition policy matters via a number
of fora, for example the previously mentioned Interstate Legislation Review
Working Group. Multilateral and bilateral contacts have allowed Parties
to work together, where appropriate, and exchange information gained from
their experiences in implementing competition policy. Nonetheless, the
discretion that all jurisdictions retain has resulted in some inconsistencies
between jurisdictions.

In recognition of the costs that such inconsistencies can potentially
impose, the Commonwealth will work with the States and Territories towards
the development of a common set of basic principles to apply the public
interest test.

The Committee recommends all jurisdictions should publish guidelines
encompassing the application of the 'public interest test'.

Response

Agreed in principle.

The NCC released "Considering the Public Interest under the National
Competition Policy" in November 1996. This document provides guidance
to managers in assessing the public interest.

In addition, a number of jurisdictions have already published material
on the performance of public interest tests. However, these publications
are of varying detail and do not reflect a constant approach between jurisdictions.
The Commonwealth will raise this matter with the States and Territories.

B. COMMUNITY SERVICE OBLIGATIONS (CSOs)

Recommendation 2 - Transparency of CSOs

The Committee recommends that all CSOs be explicitly defined and
their details made publicly available.

Response

Agreed.

The Commonwealth agrees that, wherever possible, full details relating
to specific CSOs, including the full cost of provision, be provided in
the annual reports of each government owned entity, including departments
responsible for that particular CSO. Reporting is addressed in the response
to recommendation 6(a).

Recommendation 3 - Coordination of CSOs & Welfare Payments

The Committee recommends that the Council of Australian Governments
address ways of better coordinating the provision of community service
obligations and welfare payments to safeguard the equitable distribution
of payments and benefits for all recipients.

Response

The identification and funding of CSOs may have some implications for
the provision of welfare payments. The need for COAG to address any inter-jurisdictional
issues could be determined in light of initial consideration by the relevant
Ministerial Council.

Recommendation 4 - CSO Funding Arrangements

The Committee recommends that the funding arrangements for both
existing and new community service obligations be transparent and assessed
on a case by case basis.

Response

Agreed.

Funding arrangements for all CSOs should be made as transparent as possible.
As a general rule, the Commonwealth favours direct budget funding of CSOs,
rather than relying on cross-subsidisation. However, there are exceptions
where large transaction costs are involved with Budget funding. For Commonwealth
commercial business activities CSO costs should, wherever possible, be
negotiated as part of a commercially negotiated agreement so that the
business will still be able to pay taxes and commercial dividends.

Recommendation 5 - Contracting Out CSOs

The Committee recommends that any decision by a party to contract
out the provision of community service obligations is most appropriately
made on a case-by-case basis. Any contracting arrangement should contain
clearly identified performance criteria and exit provisions.

Response

Agreed.

The Commonwealth's May 1997 'Performance Improvement Cycle: Guidance
for Managers', exposure draft, indicates that government agencies should
review all current government activities, including CSO activities on
a case by case basis. These reviews should address whether the Commonwealth
should retain responsibility for those activities, and if so, what performance
improvement tool, such as competitive tendering and contracting, might
be appropriate.

The Minister for Finance has been tasked with reporting back to Government,
in 1998/99 on the implementation of Competitive Tendering and Contracting
(CTC) within Commonwealth agencies, along with specific initiatives to
broaden the scope of CTC.

* Where agencies choose to subject CSOs to more contestable arrangements,
including CTC, the principles of competitive neutrality will apply.

Government Agencies remain accountable to the Government, to Parliament
and to their clients, even when they contract out delivery of CSOs. Therefore,
it is essential that contracts clearly define the CSO activity and its
objectives; specify required outcomes; determine expected performance
levels; and contain appropriate termination provisions. Agencies should
seek expert legal advice as early as possible during the contracting process.
The Competitive Tendering and Contracting: Guidance for Managers, exposure
draft outlines how government departments can ensure that contracting
arrangements adequately reflect these specifications.

Recommendation 6 - Reporting & Monitoring of CSOs

The Committee recommends that all governments:

6(a) require their government business enterprises to include
in their annual reports and corporate/business plans or other publicly
available documents detailed information on the objectives, definition,
costing, funding and contracting arrangements for community service obligations;

Response

Agreed in principle.

GBEs and business units are required to include details of CSOs in their
corporate plans/business plans. CSOs will be included in the annual reports
of operations of Commonwealth authorities, required under the Commonwealth
Authorities and Companies Act 1997.

6(b) implement effective monitoring programs for community service
obligations and ensure that those programs be outcome oriented.

Response

Agreed in principle.

As with the provision of general government programmes, monitoring,
evaluation and review of CSO programmes is central to ensuring cost effective
provision.

Performance criteria for CSO programmes should be 'outcome' based as
far as is practicable. A focus on outcomes will assist governments in
achieving the stated public policy goals of explicit CSO programmes. This
need to focus on outcomes is equally applicable to either Government Departments,
GBE's or private sector businesses that are involved in providing CSO
programmes.

The need for regular and formal monitoring of the delivery of CSOs is
particularly important where the provision has been contracted out. This
is because 'contracted' providers have direct contact with clients, but
the government agency 'purchasing' the services does not.

Evaluation and review is sound management practice and should be applied
in all cases, including situations where delivery of CSOs has been contracted
out.

C. IMPLICATIONS FOR THE EFFICIENT DELIVERY OF SERVICES BY LOCAL GOVERNMENT

Recommendation 7 - Taxation of Local Government Businesses

The Treasurer as a matter of priority address the issue of taxation
of local government businesses at the next meeting of the Council of Australian
Governments as under the current regime there is a powerful disincentive
to corporatise.

Response

Agreed in principle, however, the issue is being addressed through other
fora.

The Government is aware that some councils are considering corporatising
local government business enterprises and is concerned to ensure that
important micro-economic reforms are not impeded by the Commonwealth's
tax system. The Commonwealth has provided a commitment to local government
that it will not be financially disadvantaged, at an aggregate level,
through the implementation of national competition policy reforms.

However, the Commonwealth does not consider it appropriate to extend
the arrangement of tax equivalent regimes (TERs), under which wholly State-owned
entities are exempt from Commonwealth taxation and subject to State-levied
tax equivalent payments, to local government. There are significant administrative
and practical difficulties involved in establishing workable TERs, particularly
for wholesale sales tax. Each local council would be required to set up
an equivalent regime to administer TER payments, and the administrative
costs of such an exercise could be as large as the tax equivalent payments
collected. Difficulties such as these have led to State Governments requesting
that many of their entities remain directly subject to Commonwealth taxes
via 'black lists'. Approximately 300 State-owned entities are listed on
the black lists.

There are two important processes under way which will bear on how the
no-financial disadvantage arrangements will operate with respect to local
government.

Firstly, the Commonwealth and the States are currently conducting a
review of existing Commonwealth/State taxation arrangements as they apply
to business activities at the Commonwealth and State levels, including
arrangements put into place under the Statement of Policy Intent.

Secondly, the Prime Minister announced on 13 August 1997 the Government's
intention to undertake more fundamental taxation reform, including reform
of Commonwealth/State financial relations.

Recommendation 8 - Local Government Accounting & Management Systems

The committee recommends that State and Territory Governments
encourage their local councils to more urgently implement appropriate
accounting and financial management systems to assist resource allocation
decisions, including those relating to community service obligations.

Response

Agreed in principle.

This is a matter to be addressed by State and Territory Governments
in consultation with their local governments. The Commonwealth will forward
the Committee's recommendation to the States and Territories at the next
COAG meeting.

D. RELATED ISSUES

Recommendation 9 - Dual Role of The National Competition Council (NCC)

The Committee recommends that following the completion of the
current assessment round the Council of Australian Governments evaluate
the dual role of the National Competition Council to determine if both
roles are appropriate.

Response

Disagree.

The NCC does have a dual role under the Competition Principles Agreement.
First, it has a general advisory role, promoting national competition
policy and advising jurisdictions on competition policy. Secondly, the
NCC will assess the performance of the States and Territories in implementing
competition policy and related reforms. There are clearly tensions between
the role of adviser and assessor.

Nonetheless, the NCC has accumulated extensive competition policy expertise
which is of value in executing both roles. In considering the responsibilities
of the NCC, the importance of effectively utilising the specialised skills
of the NCC must be given due weight.

The CPA states that each jurisdiction may refer proposals to the NCC
for possible inclusion in the NCC's work program. In accordance with the
CPA, the NCC is currently reviewing the legislation governing Australia
Post. The approval of the NCC's formal work program by all Parties limits
the potential conflicts that may arise from the NCC's dual roles.

Parties have the opportunity to review the need for, and the operation
of the NCC after it has been in existence for five years.

Recommendation 10 - More 'Open' Approach By The NCC

The Committee recommends the National Competition Council adopt
a more open approach to its work and be more active in disseminating information
about the activities of the Council and National Competition Policy.

Response

Agreed.

The NCC has begun to take a more pro-active role. For example, it has
recently commenced a monthly newsletter which provides an update of developments
in competition policy and structural reform matters more generally. The
NCC also maintains a web site on similar matters. In addition to its annual
report the NCC has published explanatory documents on matters such as
the public interest and the national access regime. The NCC's first assessments
of jurisdictions' implementation of competition policy in 1997 has been
published. Subsequent assessments to be performed in 1999 and 2001, will
also be published.

It is recognised that a greater profile will assist the NCC in performing
its role as an advisory body on competition policy.

Recommendation 11 - Review of NCC Activities After 5 years

The Committee recommends that the review of the need for and operation
of the National Competition Council after it has been in existence for
five years be an independent review and if the review determines the Council
is to continue, a sunset clause on this matter be inserted into the Competition
Principles Agreement.

Response

Agreed in principle.

The Competition Principles Agreement requires that parties to the CPA
review the need for, and the operation of, the NCC after it has been in
existence for five years. In addition, the CPA itself is to be reviewed
once it has operated for five years.

Terms of reference for these reviews will be performed jointly by parties
to the CPA.

The issue of any sunsetting arrangements would best be considered in
the context of that review.

12(a) the assessment for payment of both the Financial Assistance
Grants and Competition Payments be performance based and reflect both
the spirit and intent of the competition policy reform legislation and
the inter-governmental agreements;

Response

Implemented.

The NCC completed its first assessment of State and Territory progress
in implementing competition policy and related reforms in June 1997. The
Treasurer accepted the NCC's recommendation that all jurisdictions receive
their 1997-98 payments contingent upon completion of specific steps which
jurisdictions will be expected to take over 1997-98.

The NCC stated in its June report that when assessing States' and Territories'
progress it will be looking for substantial compliance with national competition
policy obligations, both in terms of processes and reform outcomes. In
essence, the NCC will be requiring a demonstrated commitment both in substance
and spirit before making a positive recommendation to the Treasurer.

12(b) details of the assessment outcomes and process are made publicly
available following each tranche's assessment.

Response

Agreed.

The NCC's findings and recommendations were made public in the form
of a report released in July 1997. This practice will be followed for
each of the next three tranches' assessments.

Recommendation 13 -Measurement & Monitoring Systems

The Committee recommends that the State, Territory, and Commonwealth
Governments put in place measurement and monitoring systems so that the
outcomes of implementing national competition policy can be adequately
assessed in the future.

Response

Agreed in principle.

An ex post assessment of competition policy will be performed at an
appropriate time. Such an assessment will require adequate measurement
and monitoring systems. To an extent, such systems are already in place.
For example, the NCC maintains a watching brief over all jurisdictions'
implementation of competition policy and will provide a formal assessment
of progress before payment of each of the competition payments. In addition
the NCC comments upon the progress of competition policy in its annual
reports. Each jurisdiction is also required to publish an annual report
on its efforts towards implementing legislation review and competitive
neutrality. These reporting arrangements will assist in the future assessment
of the outcomes of implementing national competition policy.

An appropriate time to consider a more formal review would be in the
context of the review of the operation of the competition policy intergovernmental
agreements which will take place around 2000. The major part of the first
round of the regulation review exercise will then be complete.

The Committee recommends that all agencies involved in the implementation
of national competition policy devote resources to ensure community understanding
and debate about the contents of the policy and its outcomes.

Response

Agreed in principle.

Understanding of competition policy is central to community acceptance.
Currently there exists a degree of apprehension about competition policy;
this needs to be corrected and allayed if the momentum for reform is to
be maintained.

It is the responsibility of all involved in competition policy to raise
public understanding of competition policy and for the community to be
given the opportunity to input into the implementation of competition
policy reforms. Commonwealth, State and Territory bodies have made progress
towards this end.